Section 80P Deduction Allowed on Interest Earned from Bank Deposits by Co-operative Credit Society: ITAT Pune

Ruby Hall Clinic Karmchari Sahakari Patsanstha Maryadit Vs ITO (ITAT Pune)

The Pune Bench of the Income Tax Appellate Tribunal allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for Assessment Year 2017-18. The assessee, a co-operative credit society engaged in providing credit facilities to its members, had filed its return declaring nil income after claiming deduction under Chapter VI-A amounting to ₹79,89,208. The original assessment under Section 143(3) accepted the returned income and allowed deduction under Section 80P. Subsequently, the Principal Commissioner of Income Tax exercised revisional jurisdiction under Section 263, holding that the Assessing Officer had failed to examine the taxability of interest income of ₹17,42,124 earned from surplus funds kept with Pune District Central Cooperative Bank, and directed a fresh assessment. In the reassessment, the Assessing Officer disallowed the exemption under Section 80P, and the CIT(A) upheld the disallowance on the ground that the interest income was not earned in the regular course of business.

Before the Tribunal, the assessee submitted that the issue stood covered by several decisions of the Pune Benches in favour of similarly placed assessees. The Tribunal observed that the assessee was admittedly a co-operative society engaged in providing credit facilities and did not possess a banking licence from the Reserve Bank of India. Referring to the Supreme Court decision in PCIT v. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd. and the Bombay High Court decision in PCIT v. Quepem Urban Co-operative Credit Society Ltd., the Tribunal held that the assessee was eligible for deduction under Section 80P(2)(a)(i). It also noted the divergence of judicial opinion among various High Courts regarding deduction on interest earned from deposits with banks and observed that the Pune Bench had earlier followed the Karnataka High Court decision in Tumkur Merchants Souharda Credit Cooperative Ltd. v. ITO, holding such interest income to be business income eligible for deduction under Section 80P(2)(a)(i). Following the coordinate bench decision, the Tribunal held that the interest income earned on fixed deposits with co-operative and scheduled banks retained the character of business income and qualified for deduction under Section 80P(2)(a)(i). Accordingly, it directed the Assessing Officer to allow the deduction and allowed the appeal.

FULL TEXT OF THE ORDER OF ITAT PUNE

This is an appeal filed by the assessee directed against the order of CIT(A) in National Faceless Appeal Centre, Delhi (NFAC) dated 18.12.2023 for the assessment year 2017-18.

2. Brief facts of the case are that the appellant is a Co-operative credit society engaged in providing credit facilities to its members. The Return of Income for the assessment year 2017-18 was filed on 28.10.2017 declaring total income of Rs.Nil after claiming deduction under Chapter VIA at Rs.79,89,208/-. The case was selected for scrutiny under CASS for verification of ‘Deduction under Chapter VIA & Investments/advances/loan”. The assessment was completed by the Assessing Officer u/s.143(3) vide order dated 30.11.2019 accepting the returned income at Rs. NIL allowing assessee’s claim of deduction u/s.80P amounting to Rs.79,89,208/-. Lateron, on examination of record, the Pr.CIT, Pune-4 vide order dated 28.03.2022 in exercise of powers vested with him u/s.263 had set aside the assessment order with a direction to redo the assessment as he formed opinion that the AO failed to examine the taxability of the interest income of Rs.17,42,124/- earned by the appellant from the surplus funds kept with Pune District Central Cooperative Bank. In the order passed pursuant to order u/s.263, the AO disallowed the claim of exemption of interest income u/s.80P.

3. Being aggrieved, an appeal was filed before the NFAC, who vide impugned order confirmed the order passed by the Pr.CIT on the ground that the interest income earned by the appellant society is not the income from the regular course of business.

4. Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.

5. The ld. AR submitted before us that the issue no more res integra by virtue of several decisions passed by the Pune Benches of the Tribunal in favour of the appellant(s).

6. On the other hand, ld. Sr. DR placing reliance on the orders of the lower authorities submits that no interference is called for.

7. Heard the rival submissions and perused the material on record. The issue in the present appeal relates to the eligibility of the assessee for exemption u/s 80P(2)(a)(i) or u/s 80P(2)(d) of the Act. It is an admitted fact that the appellant is a cooperative society engaged in the business of providing credit facilities. It does not enjoy any license to carry on the business of banking from Reserve Bank of India. Therefore, as held by the Hon’ble Supreme Court in the case of PCIT vs. Annasaheb Patil Mathadi Kamgar Sahakari Pathpedi Ltd., 454 ITR 117 (SC) that the assessee is eligible for deduction u/s 80P(2)(a)(i) of the Act. Reliance in this regard can also be placed on the decision of the Hon’ble Bombay High Court in the case of PCIT vs. Quepem Urban Co-operative Credit Society Ltd., 438 ITR 631 (Bom.).

8. As regards, the issue as to the allowability of exemption under the provisions of section 80P(2)(a)(i) in respect of interest income earned by a cooperative society from the scheduled banks, there is a cleavage of judicial opinion among several High Courts on the issue of eligibility of this kind of income for exemption u/s. 80P(2)(a)(i) of the Act. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Punjab State Cooperative Federation of Housing Building Societies Ltd. 11 taxmann.com 448, the Hon’ble Gujarat High Court in the case of State Bank of India Vs. CIT 389 ITR 578 (Guj.), the Hon’ble Delhi High Court in the case of Mantola Co­operative Thrift & Credit Society Ltd. Vs. CIT 50 taxmann.com 278, the Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Punjab State Cooperative Agricultural Development Bank Ltd.

389 ITR 68 and the Hon’ble Kolkata High Court in the case of CIT Vs. Southern Eastern Employees Cooperative Credit Society Ltd.

390 ITR 524 took a view that the income arising on the surplus invested in short term deposits and securities cannot be attributed to the activities of the society and, therefore, not eligible for exemption u/s.80P(2)(a)(i) of the Act. However, the Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. Vs. ITO (2015) 230 taxmann.com 309 (Kar.) and the Hon’ble Telangana and Hon’ble Andhra Pradesh High Court in the case of Vaveru Co-operative Rural Bank Ltd. v CIT [(2017) 396 ITR 371 took a view that such interest income is attributable to the activities of the society and, therefore, eligible for exemption u/s 80P(2)(a)(i) of the Act. Similar view has been taken by the Hon’ble Calcutta High Court in the case of PCIT vs. Gunja Samabay Krishi Unnayan Samity Ltd., 147 taxmann.com 518 (Calcutta) and the Hon’ble Madras High Court in the case of Chennai Central Co­operative Bank Ltd. vs. ITO, 148 taxmann.com 17 (Madras). The Coordinate Bench of Pune Benches in the case of M/s. Ratnatray Gramin Bigar Sheti Sah. Pat Sanstha Maryadit Vs. ITO (ITA Nos.559/560/PUN/2018, dated 11-12-2018) taken view in favour of the assessee following the judgment of Hon’ble Karnataka High Court in the case of Tumkur Merchants Souharda Credit Cooperative Ltd. (supra). Following the decision of the Coordinate Bench of the Tribunal, we of the considered opinion that the interest income earned on fixed deposits with cooperative bank/scheduled bank partakes character of the business income, which is eligible for deduction u/s 80P(2)(a)(i) of the Act. Therefore, we direct the Assessing Officer to allow the exemption u/s.80P(2)(a)(i) of the Act. Thus, the grounds of appeal filed by the assessee stand allowed.

9. In the result, the appeal of the assessee is allowed.

Order pronounced on this 25^th day of April, 2024.